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- Competition (3)
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- Informational intermediary (3)
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- Subgame perfect equilibrium (3)
- Bayesian persuasion (2)
- Boosting (2)
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- Climate change (2)
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- Finite Menu (2)
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- Long memory (2)
- Market base (2)
- Nonlinear Pricing (2)
- Personalized pricing (2)
- Price discrimination (2)
- Recommender System (2)
- Screening (2)
- Stationary-Markov equilibrium (2)
- Action (1)
- Affirmative Action (1)
- Airlines (1)
- Algorithmic targeting (1)
- Antidiscrimination Policy (1)
- Arbitrage (1)
- Asymptotic deficiency (1)
- Asymptotic equivalence (1)
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Articles 1 - 30 of 41
Full-Text Articles in Economics
Robust Inference On Correlation Under General Heterogeneity, Liudas Giraitis, Yugei Li, Peter C. B. Phillips
Robust Inference On Correlation Under General Heterogeneity, Liudas Giraitis, Yugei Li, Peter C. B. Phillips
Cowles Foundation Discussion Papers
Considerable evidence in past research shows size distortion in standard tests for zero autocorrelation or cross-correlation when time series are not independent identically distributed random variables, pointing to the need for more robust procedures. Recent tests for serial correlation and cross-correlation in Dalla, Giraitis, and Phillips (2022) provide a more robust approach, allowing for heteroskedasticity and dependence in un-correlated data under restrictions that require a smooth, slowly-evolving deterministic heteroskedasticity process. The present work removes those restrictions and validates the robust testing methodology for a wider class of heteroskedastic time series models and innovations. The updated analysis given here enables more …
Heterogeneous Paths Of Industrialization, Federico Huneeus, Richard Rogerson
Heterogeneous Paths Of Industrialization, Federico Huneeus, Richard Rogerson
Cowles Foundation Discussion Papers
Industrialization experiences differ substantially across countries. We use a benchmark model of structural change to shed light on the sources of this heterogeneity and, in particular, the phenomenon of premature deindustrialization. Our analysis leads to three key findings. First, benchmark models of structural change robustly generate hump-shaped patterns for the evolution of the industrial sector. Second, heterogeneous patterns of catch-up in sectoral productivities across countries can generate variation in industrialization experiences similar to those found in the data, including premature deindustrialization. Third, differences in the rate of agricultural productivity growth across economies can account for the majority of the variation …
Marriage, Labor Supply And The Dynamics Of The Social Safety Net, Hamish Low, Costas Meghir, Luigi Pistaferri, Alessandra Voena
Marriage, Labor Supply And The Dynamics Of The Social Safety Net, Hamish Low, Costas Meghir, Luigi Pistaferri, Alessandra Voena
Cowles Foundation Discussion Papers
The 1996 US welfare reform introduced time limits on welfare receipt. We use quasi-experimental evidence and a lifecycle model of marriage, divorce, program participation, labor supply and savings to understand the impact of time limits on behavior and well-being. Time limits cause women to defer claiming in anticipation of future needs, an effect that depends on the probabilities of marriage and divorce. Time limits cost women 0.5% of life-time consumption, net of revenue savings redistributed by reduced taxation, with some groups affected much more. Expectations over future marital status are important determinants of the value of the social safety net.
Unified Factor Model Estimation And Inference Under Short And Long Memory, Shuyao Ke, Peter C. B. Phillips, Liangjun Su
Unified Factor Model Estimation And Inference Under Short And Long Memory, Shuyao Ke, Peter C. B. Phillips, Liangjun Su
Cowles Foundation Discussion Papers
This paper studies a linear panel data model with interactive fixed effects wherein regressors, factors and idiosyncratic error terms are all stationary but with potential long memory. The setup involves a new factor model formulation for which weakly dependent regressors, factors and innovations are embedded as a special case. Standard methods based on principal component decomposition and least squares estimation, as in Bai (2009), are found to suffer bias correction failure because the order of magnitude of the bias is determined in a complex manner by the memory parameters. To cope with this failure and to provide a simple implementable …
Robust Testing For Explosive Behavior With Strongly Dependent Errors, Yiu Lim Lui, Peter C. B. Phillips, Jun Yu
Robust Testing For Explosive Behavior With Strongly Dependent Errors, Yiu Lim Lui, Peter C. B. Phillips, Jun Yu
Cowles Foundation Discussion Papers
A heteroskedasticity-autocorrelation robust (HAR) test statistic is proposed to test for the presence of explosive roots in financial or real asset prices when the equation errors are strongly dependent. Limit theory for the test statistic is developed and extended to heteroskedastic models. The new test has stable size properties unlike conventional test statistics that typically lead to size distortion and inconsistency in the presence of strongly dependent equation errors. The new procedure can be used to consistently time-stamp the origination and termination of an explosive episode under similar conditions of long memory errors. Simulations are conducted to assess the finite …
Rural-Urban Migration And The Re-Organization Of Agriculture, Raahil Madhok, Frederik Noack, Ahmed Musfiq Mobarak, Olivier Deschenes
Rural-Urban Migration And The Re-Organization Of Agriculture, Raahil Madhok, Frederik Noack, Ahmed Musfiq Mobarak, Olivier Deschenes
Cowles Foundation Discussion Papers
This paper studies the response of agricultural production to rural labor loss during the process of urbanization. Using household microdata from India and exogenous variation in migration induced by urban income shocks interacted with distance to cities, we document sharp declines in crop production among migrant-sending households residing near cities. Households with migration opportunities do not substitute agricultural labour with capital, nor do they adopt new agricultural machinery. Instead, they divest from agriculture altogether and cultivate less land. We use a two-sector general equilibrium model with crop and land markets to trace the ensuing spatial reorganization of agriculture. Other non-migrant …
Order Statistics From Independent Non-Identical Exponentiated And Proportional Hazard Rate Random Variables, José-Antonio Espín-Sánchez, Tianhao Wu
Order Statistics From Independent Non-Identical Exponentiated And Proportional Hazard Rate Random Variables, José-Antonio Espín-Sánchez, Tianhao Wu
Cowles Foundation Discussion Papers
We study order statistics (OS) from independent non identically distributed (INID) samples for two large classes of statistical distributions: Exponentiated Distributions (ED) and Proportional Hazard Rate Models (PHRM). We show that for the analytical solution for the CDF (PDF) of OSs in ED and PHRM: i) each OS's CDF (PDF) depends on all shape parameters; ii) the CDF (PDF) of each OS is a weighted average of CDF (PDF) within the same family and with shape parameters equal to a partial sum of the original shape parameters; and iii) the weights are integers and sum up to 1. These properties …
The Boosted Hp Filter Is More General Than You Might Think, Ziwei Mei, Peter C. B. Phillips, Zhentao Shi
The Boosted Hp Filter Is More General Than You Might Think, Ziwei Mei, Peter C. B. Phillips, Zhentao Shi
Cowles Foundation Discussion Papers
The global financial crisis and Covid recession have renewed discussion concerning trend-cycle discovery in macroeconomic data, and boosting has recently upgraded the popular HP filter to a modern machine learning device suited to data-rich and rapid computational environments. This paper sheds light on its versatility in trend-cycle determination, explaining in a simple manner both HP filter smoothing and the consistency delivered by boosting for general trend detection. Applied to a universe of time series in FRED databases, boosting outperforms other methods in timely capturing downturns at crises and recoveries that follow. With its wide applicability the boosted HP filter is …
Boosting The Hp Filter For Trending Time Series With Long Range Dependence, Eva Biswas, Farzad Sabzikar, Peter C. B. Phillips
Boosting The Hp Filter For Trending Time Series With Long Range Dependence, Eva Biswas, Farzad Sabzikar, Peter C. B. Phillips
Cowles Foundation Discussion Papers
This paper extends recent asymptotic theory developed for the Hodrick Prescott (HP) filter and boosted HP (bHP) filter to long range dependent time series that have fractional Brownian motion (fBM) limit processes after suitable standardization. Under general conditions it is shown that the asymptotic form of the HP filter is a smooth curve, analogous to the finding in Phillips and Jin (2021) for integrated time series and series with deterministic drifts. Boosting the filter using the iterative procedure suggested in Phillips and Shi (2021) leads under well defined rate conditions to a consistent estimate of the fBM limit process or …
The Impact Of Carbon Taxes On The Value Of Fossil-Fuel Reserves And The Efficiency Of Climate Policy, William D. Nordhaus
The Impact Of Carbon Taxes On The Value Of Fossil-Fuel Reserves And The Efficiency Of Climate Policy, William D. Nordhaus
Cowles Foundation Discussion Papers
The present study analyzes the impact of carbon pricing along with other policies on the value of fossil fuel resources, CO2 emissions, and economic welfare. It employs a model based on the Hotelling analysis of resource values and calibrates this approach to data on fossil resources, costs, demands, and CO2 emissions. Total fossil-fuel resource rents are today estimated to be $17 trillion (2021 US$) without carbon pricing. Oil and gas rents are unchanged for low carbon taxes but would decline by 40% with a $100/tCO2 price. The losses in producer values would be only about 10% of …
Taxing Externalities Without Hurting The Poor, Mallesh Pai, Philipp Strack
Taxing Externalities Without Hurting The Poor, Mallesh Pai, Philipp Strack
Cowles Foundation Discussion Papers
We consider the optimal taxation of a good which exhibits a negative externality, in a setting where agents differ in their value for the good, their disutility from the externality, and their value for money, while the planner observes neither. Pigouvian taxation is the unique Pareto efficient mechanism, yet it is only optimal if the planner puts higher Pareto weights on richer agents. We derive the optimal tax schedule for both a narrow allocative objective and a utilitarian objective for the planner. The optimal tax is generically nonlinear, and Pareto inefficient. The optimal mechanism might take a “non-market” form and …
Data, Competition, And Digital Platforms, Dirk Bergemann, Alessandro Bonatti
Data, Competition, And Digital Platforms, Dirk Bergemann, Alessandro Bonatti
Cowles Foundation Discussion Papers
We propose a model of intermediated digital markets where data and heterogeneity in tastes and products are deÖning features. A monopolist platform uses superior data to match consumers and multiproduct advertisers. Consumers have heterogenous preferences for the advertisers' product lines and shop on- or o§-platform. The platform monetizes its data by selling targeted advertising space that allows advertisers to tailor their products to each consumer's preferences. We derive the equilibrium product lines and advertising prices. We identify search costs and informational advantages as two sources of the platform's bargaining power. We show that privacy-enhancing data-governance rules, such as those corresponding …
Dynamic Price Competition: Theory And Evidence From Airline Markets, Ali Hortaçsu, Aniko Öry, Kevin R. Williams
Dynamic Price Competition: Theory And Evidence From Airline Markets, Ali Hortaçsu, Aniko Öry, Kevin R. Williams
Cowles Foundation Discussion Papers
We introduce a model of oligopoly dynamic pricing where firms with limited capacity face a sales deadline. We establish conditions under which the equilibrium is unique and converges to a system of differential equations. Using unique and comprehensive pricing and bookings data for competing U.S. airlines, we estimate our model and find that dynamic pricing results in higher output but lower welfare than under uniform pricing. Our theoretical and empirical findings run counter to standard results in single-firm settings due to the strategic role of competitor scarcity. Pricing heuristics commonly used by airlines increase welfare relative to estimated equilibrium predictions.
Screening With Persuasion, Dirk Bergemann, Tibor Heumann, Stephen Morris
Screening With Persuasion, Dirk Bergemann, Tibor Heumann, Stephen Morris
Cowles Foundation Discussion Papers
We consider a general nonlinear pricing environment with private information. We characterize the information structure that maximizes the seller's profits. The seller who cannot observe the buyer's willingness to pay can control both the signal that a buyer receives about his value and the selling mechanism. The optimal screening mechanism has finitely many items even with a continuum of types. We identify sufficient conditions under which the optimal mechanism has a single item. Thus, the socially efficient variety of items is decreased drastically at the expense of higher revenue and lower information rents.
Climate Change Around The World, Per Krusell, Anthony A. Smith Jr.
Climate Change Around The World, Per Krusell, Anthony A. Smith Jr.
Cowles Foundation Discussion Papers
The economic effects of climate change vary across both time and space. To study these effects, this paper builds a global economy-climate model featuring a high degree of geographic resolution. Carbon emissions from the use of energy in production increase the Earth's (average) temperature and local, or regional, temperatures respond more or less sensitively to this increase. Each of the approximately 19,000 regions makes optimal consumption-savings and energy-use decisions as its climate (or regional temperature) and, consequently, its productivity change over time. The relationship between regional temperature and regional productivity has an inverted U-shape, calibrated so that the high-resolution model …
Trade, Leakage, And The Design Of A Carbon Tax, David A. Weisbach, Samuel Kortum, Michael Wang, Yujia Yao
Trade, Leakage, And The Design Of A Carbon Tax, David A. Weisbach, Samuel Kortum, Michael Wang, Yujia Yao
Cowles Foundation Discussion Papers
Climate policies vary widely across countries, with some countries imposing stringent emissions policies and others doing very little. When climate policies vary across countries, energy-intensive industries have an incentive to relocate to places with few or no emissions restrictions, an effect known as leakage. Relocated industries would continue to pollute but would be operating in a less desirable location. We consider solutions to the leakage problem in a simple setting where one region of the world imposes a climate policy and the rest of the world is passive. We solve the model analytically and also calibrate and simulate the model. …
Informational Intermediation, Market Feedback, And Welfare Losses, Kai Hao Yang, Wenji Xu
Informational Intermediation, Market Feedback, And Welfare Losses, Kai Hao Yang, Wenji Xu
Cowles Foundation Discussion Papers
This paper examines the welfare implications of third-party informational intermediation. A seller sets the price of a product that is sold through an informational intermediary. The intermediary can disclose information about the product to consumers and earns a fixed percentage of sales revenue in each period. The intermediary’s market base grows at a rate that increases with past consumer surplus. We characterize the stationary equilibria and the set of subgame perfect equilibrium payoffs. When market feedback (i.e., the extent to which past consumer surplus affects future market bases) increases, welfare may decrease in the Pareto sense.
Screening With Persuasion, Dirk Bergemann, Tibor Heumann, Stephen Morris
Screening With Persuasion, Dirk Bergemann, Tibor Heumann, Stephen Morris
Cowles Foundation Discussion Papers
We consider a general nonlinear pricing environment with private information. The seller can control both the signal that the buyers receive about their value and the selling mechanism. We characterize the optimal menu and information structure that jointly maximize the seller's profit. The optimal screening mechanism has finitely many items even with a continuum of values. We identify sufficient conditions under which the optimal mechanism has a single item. Thus the seller decreases the variety of items below the efficient level in order to reduce the information rents of the buyers.
A General Limit Theory For Nonlinear Functionals Of Nonstationary Time Series, Qiying Wang, Peter C. B. Phillips
A General Limit Theory For Nonlinear Functionals Of Nonstationary Time Series, Qiying Wang, Peter C. B. Phillips
Cowles Foundation Discussion Papers
Limit theory is provided for a wide class of covariance functionals of
a nonstationary process and stationary time series. The results are relevant
to estimation and inference in nonlinear nonstationary regressions that involve unit root, local unit root or fractional processes and they include both parametric and nonparametric regressions. Self normalized versions of these
statistics are considered that are useful in inference. Numerical evidence reveals a strong bimodality in the finite sample distributions that persists for very large sample sizes although the limit theory is Gaussian. New self normalized versions are introduced that deliver improved approximations.
Why Have Interest Rates Been Low?, Ray C. Fair
Why Have Interest Rates Been Low?, Ray C. Fair
Cowles Foundation Discussion Papers
This paper uses an estimated interest rate rule of the Fed to argue that the low recent interest rates may be due to a change in Fed behavior. Prior to the Great Recession the Fed’s behavior is consistent with the rule. During the recession the zero lower bound was hit in 2008.4. The rule unconstrained called for negative nominal interest rates during this period, and so it became inoperative. The Fed kept the interest rate at roughly zero through 2015. This was a period of low inflation and still fairly high unemployment rates, and the rule called for essentially zero …
Selection In The Presence Of Implicit Bias: The Advantage Of Intersectional Constraints, Anay Mehrota, Bary S.R. Pradelski, Nisheeth Vishnoi
Selection In The Presence Of Implicit Bias: The Advantage Of Intersectional Constraints, Anay Mehrota, Bary S.R. Pradelski, Nisheeth Vishnoi
Cowles Foundation Discussion Papers
In selection processes such as hiring, promotion, and college admissions, implicit bias toward socially-salient attributes such as race, gender, or sexual orientation produces persistent inequality and reduces utility for the decision-maker. Recent works show that interventions like the Rooney Rule, which require a minimum quota of individuals from each affected group, are very effective in improving utility when individuals belong to at most one affected group. However, in several settings, individuals belong to multiple affected groups and, consequently, face more extreme implicit bias due to this intersectionality. We consider independently drawn utilities and show that, with intersectionality, the aforementioned non-intersectional …
Lookalike Targeting On Others' Journeys: Brand Versus Performance Marketing, K. Sudhir, Seung Yoon Lee, Subroto Roy
Lookalike Targeting On Others' Journeys: Brand Versus Performance Marketing, K. Sudhir, Seung Yoon Lee, Subroto Roy
Cowles Foundation Discussion Papers
Lookalike targeting is a widely used model-based ad targeting approach that uses a seed database of individuals to identify matching “lookalikes” for targeted customer acquisition. An advertiser has to make two key choices: (1) who to seed on and (2) seed-match rank range. First, we find that seeding on others’ journey stage can be effective in new customer acquisition; despite the cold start nature of customer acquisition using Lookalike audiences, third parties can indeed identify factors unobserved to the advertiser that move individuals along the journey and can be correlated with the lookalikes. Further, while journey-based seeding adds no incremental …
Econometric Analysis Of Asset Price Bubbles, Shuping Shi, Peter C. B. Phillips
Econometric Analysis Of Asset Price Bubbles, Shuping Shi, Peter C. B. Phillips
Cowles Foundation Discussion Papers
In the presence of bubbles, asset prices consist of a fundamental and a bubble component, with the bubble component following an explosive dynamic. The general idea for bubble identification is to apply explosive root tests to a proxy of the unobservable bubble. Three notable proxies are the real asset prices, log price-payoff ratios, and estimated non-fundamental components. The rationale for all three proxy choices rests on the definition of bubbles, which has been presented in various forms in the literature. This chapter provides a theoretical framework that incorporates several definitions of bubbles (and fundamentals) and offers guidance for selecting proxies. …
Weak Identification Of Long Memory With Implications For Inference, Peter C. B. Phillips
Weak Identification Of Long Memory With Implications For Inference, Peter C. B. Phillips
Cowles Foundation Discussion Papers
This paper explores weak identification issues arising in commonly used models of
economic and financial time series. Two highly popular configurations are shown to
be asymptotically observationally equivalent: one with long memory and weak autoregressive dynamics, the other with antipersistent shocks and a near-unit autoregressive
root. We develop a data-driven semiparametric and identification-robust approach to
inference that reveals such ambiguities and documents the prevalence of weak identification in many realized volatility and trading volume series. The identification-robust empirical evidence generally favors long memory dynamics in volatility and volume, a conclusion that is corroborated using social-media news flow data.
Prudential Policy With Distorted Beliefs, Eduardo Dávila, Ansgar Walther
Prudential Policy With Distorted Beliefs, Eduardo Dávila, Ansgar Walther
Cowles Foundation Discussion Papers
This paper studies leverage regulation when equity investors and/or creditors have distorted beliefs relative to a planner. We characterize how the optimal regulation responds to arbitrary changes in investors’/creditors’ beliefs, relating our results to practical scenarios. We show that the optimal regulation depends on the type and magnitude of such changes. Optimism by investors calls for looser leverage regulation, while optimism by creditors, or jointly by both investors/creditors, calls for tighter leverage regulation. Our results apply to environments with i) planners with imperfect knowledge of investors’/creditors’ beliefs, ii) monetary policy, iii) bailouts and pecuniary externalities, and iv) endogenous beliefs.
Asymptotics Of Polynomial Time Trend Estimation And Hypothesis Testing Under Rank Deficiency, Peter C. B. Phillips
Asymptotics Of Polynomial Time Trend Estimation And Hypothesis Testing Under Rank Deficiency, Peter C. B. Phillips
Cowles Foundation Discussion Papers
Limit theory is developed for least squares regression estimation of a model involving time trend polynomials and a moving average error process with a unit root. Models with these features can arise from data manipulation such as overdifferencing and model features such as the presence of multicointegration. The impact of such features on the asymptotic equivalence of least squares and generalized least squares is considered. Problems of rank deficiency that are induced asymptotically by the presence of time polynomials in the regression are also studied, focusing on the impact that singularities have on hypothesis testing using Wald statistics and matrix …
The Impact Of Upzoning On Housing Construction In Auckland, Ryan Greenaway-Mcgrevy, Peter C. B. Phillips
The Impact Of Upzoning On Housing Construction In Auckland, Ryan Greenaway-Mcgrevy, Peter C. B. Phillips
Cowles Foundation Discussion Papers
There is a growing debate about whether upzoning is an effective policy response to housing shortages and unaffordable housing. This paper provides empirical evidence to further inform debate by examining the various impacts of recently implemented zoning reforms on housing construction in Auckland, the largest metropolitan area in New Zealand. In 2016, the city upzoned approximately three quarters of its inner suburban land to facilitate construction of more intensive housing. We use a quasi-experimental approach to analyze the short-run impacts of the reform on construction, allowing for potential shifts in construction from non-upzoned to upzoned areas (negative spillovers) that would, …
Personalized Pricing And Competition, Andrew Rhodes, Jidong Zhou
Personalized Pricing And Competition, Andrew Rhodes, Jidong Zhou
Cowles Foundation Discussion Papers
We study personalized pricing (or first-degree price discrimination) in a general oligopoly model. In the short-run, when the market structure is fixed, the impact of personalized pricing hinges on the degree of market coverage (i.e., how many consumers buy). If coverage is high (e.g., because the production cost is low, or the number of firms is large), personalized pricing intensifies competition and so harms firms but benefits consumers, whereas the opposite is true if coverage is low. However in the long-run, when the market structure is endogenous, personalized pricing always benefits consumers because it induces the socially optimal level of …
Personalized Pricing And Competition, Andrew Rhodes, Jidong Zhou
Personalized Pricing And Competition, Andrew Rhodes, Jidong Zhou
Cowles Foundation Discussion Papers
We study personalized pricing in a general oligopoly model. When the market structure is fixed, the impact of personalized pricing relative to uniform pricing hinges on the degree of market coverage. If market conditions are such that coverage is high, personalized pricing harms firms and benefits consumers, whereas the opposite is true if coverage is low. However, when the market structure is endogenous, personalized pricing benefits consumers because it induces socially optimal firm entry. Finally, when only some firms have data to personalize prices, consumers can be worse off compared to when either all or no firms personalize prices.
Belief Convergence Under Misspecified Learning: A Martingale Approach, Mira Frick, Ryota Iijima, Yuhta Ishii
Belief Convergence Under Misspecified Learning: A Martingale Approach, Mira Frick, Ryota Iijima, Yuhta Ishii
Cowles Foundation Discussion Papers
We present an approach to analyze learning outcomes in a broad class of misspecified environments, spanning both single-agent and social learning. We introduce a novel “prediction accuracy” order over subjective models, and observe that this makes it possible to partially restore standard martingale convergence arguments that apply under correctly specified learning. Based on this, we derive general conditions to determine when beliefs in a given environment converge to some long-run belief either locally or globally (i.e., from some or all initial beliefs). We show that these conditions can be applied, first, to unify and generalize various convergence results in previously …